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Why Do Firms Invest in General Training? 'Good' Firms and 'Bad' Firms as a Source of Monopsony Power

Booth, Alison L and Zoega, Gylfi (2000) Why Do Firms Invest in General Training? 'Good' Firms and 'Bad' Firms as a Source of Monopsony Power. Working Paper. C.E.P.R. Discussion Papers.

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Abstract

We develop a model demonstrating conditions under which firms will invest in the general training of their workers, and show that firms' incentives to invest in general training are increasing in task complexity. Workers' heterogeneous observable innate ability affects the variety of tasks that can be performed within a firm. This gives monopsony power to firms with 'better' workforces. As a result such firms are willing to expend resources to provide workers with general training. Since the degree of monopsony power is increasing with task complexity, firms whose workforces undertake more sophisticated tasks are more willing to finance general training. We conclude that training will take place in better-than-average firms, while bad firms will have underperforming but overpaid workers that are not likely to be trained by their current employer.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Firm-Financed General Training; Hierarchical Assignment Models; Monopsony
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 18 Jul 2012 10:50
Last Modified: 18 Jul 2012 10:50
URI: http://repository.essex.ac.uk/id/eprint/3175

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